My angel investing strategy vs Joshua Schachter | Hacker News Reader

My angel investing strategy vs Joshua Schachter

gabrielweinberg.com

73 pointswyclif42 comments

I think a lot of "bulk" investors feel that trying to guess the success of early stage companies is a lot like trying the guess the success of a person when they are still in the womb. I'm always amused at the extensive diligence you see with some early stage investors-- diligence where Google or Facebook wouldn't have passed muster. I remember Joe Kraus recalling that someone passed on investing early in Excite because they said, "Who's going to SEARCH the internet? They'll just find the sites they like and bookmark them!"

I think it makes sense to get a gut feeling of the founding team (Can they sell? Do they have a passion for the space? Do they seem like they are in it for the long haul? Do they seem willing to pivot?) and it makes sense to hear/believe the narrative of the market size ( http://is.gd/ceLQU ), etc. Every investor is going to have the secret trait/quality in a founder/market that they think is critical.

But trying to guess what founders and markets are going to do over a period of 7+ years shouldn't be about dozens of hours of diligence.

Better said than I could have done.

I do like to get a sense that the company could either be big or is likely to be acquired; I prefer the first as the second is hard to judge.

how do you asses the potential size of a market when it comes to early startups? instinct?

I work in the opposite direction: Is it too small?

Apologies if you've posted on this before/elsewhere, but what do you specifically look for when deciding: team, product, market? Is there one that is more important than the others?

Even though we are not raising, the idea of raising money from someone who is actively part of the HN community is quite appealing. I think that speaks a lot about the character of the investor. Just like investors look at team, I think startups also look at the 'people' side of thier investors.

EDIT: I just saw a similar question cross-posted on your AMA post, so no need to answer here. My bad for not noticing that post first. Great stuff there!

EDIT2: Would love to know why the downvote after my first edit?

Well said. I'm doing the kind of diligence you're recommending. My point was that I at least cannot get a good sense of the founders in one meeting. I need to build a relationship and see how they're approaching product, market and customer acquisition even though I don't care about particular projections.

I guess my point is that the product IS the sense of the founders I am trying to get.

I think one can get a good sense of a team's approach within an hour long meeting.

My gut reaction is usually right, but I guess I don't trust it completely yet. Also, I don't need to meet in person more than once, or in some cases at all, but I usually have follow up questions that I want answered.

An hour long meeting will get you a good feeling if the feeling is good, or bad. If there is doubt then you may need (possibly a lot) more time.

It's a big market out there and I think both Gabriel and Joshua will do fine. They're investing in different kinds of companies and providing different kinds of value, and they'll end up with the kinds of companies they can get most mutual benefit.

That was pretty much my point. I think for many reasons (and no ones fault) that startup advice tends towards one size fits all, and that is really not appropriate. Companies are in a continuum along many different dimensions, and what they should do in terms of fundraising should vary as a consequence.

I believe that the Gabriel Weinberg method makes a lot more sense than the Schachter method. From his thread, the impression I got was that he just had some amount of money and wanted to put it in startups the way kids buy toys: Hey, that's pretty cool, here, have $10k.

The Weinberg method seems more thought out and more like it actually involves proper evaluation of the product. I believe that Weinberg is building his intuition much better than Schachter, even though Schachter may be involved in more deals.

Nowhere did I mention my actual strategy. Nobody asked and I probably won't tell.

I am trying to do a lot of deals in order to build intuition. You cannot do this without making a decision and then being faced with the consequences. I have learned a lot that took more than a few deals to figure out.

I also have a keen sense of how portfolios of assets behave rather than a small number of bets.

I suppose this is what happens when people without a clue make assumptions about scant data.

And, honestly, it feels like you want to look down on someone.

vs was poor and hasty diction on my part. I didn't mean to come across as adversarial (or critical), so I apologize if it reads like that.

Can we still AYA, i.e. what about your actual strategy will you divulge? Am I at all close that you're trending towards being the next Ron Conway?

I meant Max was sounding adversarial. He seems very angry, anyway. Big chip on his shoulder maybe?

Some of it I will divulge. Some of it I'd be happy to tell you directly someday. I should have dropped a note when I was last in Boston.

My investment serves several goals. I have a bunch of markers, horizontal business types, and vertical industries by which I evaluate things like the nature of competition the startup will enter.

I don't do as much due diligence, because I am following on with other investors who DO do more of this. I also feel that there's a lot less value to it at the earliest stages.

I am also looking to be more connected and more present in the Valley. Consider it sowing seeds.

Saying I "don't have a clue" and that I want to "look down on somebody" is not very nice. I have no reason to be angry at you, do I? I don't know you.

Perhaps you're not used to people telling you their honest opinion anymore. That's my opinion about your strategy from what I read in that thread - it's what I think and what I will continue to think.

Sometimes you will do things that other people think is shit. Actually, most things you do, some people will think it's shit. If nobody ever tells you that, it means you are surrounded by dishonest people, or people that are afraid of offending you.

I'm obviously not afraid of offending you, as I need nothing from you and you need nothing from me.

Your tone feels a bit hostile. Between your comments here and in the other thread, I get the sense you want to look down on me. That's ok, but I'm calling out how your interactions feel qualitatively to me. The fact that you get more upset when I pointed it out makes me suspect that my guess is correct.

Anyway: You took a bunch of details about the output of a process you don't understand intimately (have you ever done an angel investment?) and guessed at what that process and mindset looks like internally.

How is this not the very definition of clueless?

That's a very strange allegation. I've been accused of many things, but "looking down on people" is not one of them. I don't look down on anyone or want to, as this goes against everything I have ever stood for.

Yes, I've not done an angel investment before, but I'm not clueless. If we had a discussion about gravity, you probably don't know as much as a person who has written a few papers about gravity, but there is nothing wrong with having an opinion. I'm aware of enough material around it to have a semi-educated opinion.

In any case, I rather dislike your tone. You are dismissing my opinions, because I am 'clueless' according to your definition. That's rude.

I feel that you have something against me for whatever reason. Whoever or whatever influenced that, you can clear such things by email and you don't need to be so superior towards me here.

He's spent years in the industry building relationships and evaluating companies. You're comparing his entire investment strategy to a kid impulsively buying a toy. That's just not rational. It makes you sound like you have a chip on your shoulder.

That's just what his replies from the other thread make it seem like. Perhaps there is some more thorough method he goes through, but from what I recognized, it seemed very impulsive and surface.

And if anyone has a chip, take a look at his first reply to this: http://news.ycombinator.com/item?id=1356557

I'm assuming he knows that I do iPhone apps, and when I ask a perfectly valid question he hits me with that nugget.

Yep. I was tweaking you. You seem easily trolled and sensitive.

But why?

Yeah that seemed unworthy of you, when I read it. If Max has a profitable business, he's already vanquished a key aspiration of HN's members, whatever the product. Only world-changers gain respect?

I thought it was funny.

I think the point of this place is to share and discuss the ways to make businesses. Since Max declines to actually tell us what he does, I get the impression he is engaging for other reasons. I guess it's the ego boost, or something.

It was funny, but also a low blow. And further, since the direction to Max was veiled, it felt like an indictment of sustainable/lifestyle businesses instead of businesses you just want to avoid as a growth investor.

(Thanks for your other excellent commentary.)

Another one:

You know maybe a third to a half of the deals I've done, if you looked on CrunchBase. Gabe disclosed none of the deals he did. But you have enough data to declare which one is better?

Yes, I do. I read both of your methods, and I have a clear preference for Weinbergs method. It makes more sense to me from a neutral non-involved point of view.

Sure I could just defer to the fact that you have done so many deals and automatically declare you the winner, but I prefer to think things through on my own. Even if I am wrong, having examined it myself, I will be in a better position to understand why I was wrong.

I think you have a very thin skin and your attack against me is over-emphasized for whatever reason. Perhaps you should explain what exactly it is about me you dislike so much? From your very first reply in the last thread, you were taking potshots at me.

"I think you have a very thin skin ..."

Pretty ironic.

Gabe's deals are on his site.

http://www.gabrielweinberg.com/angel.html

Funny, I am still waiting for Wakemate to give me hardware so I can evaluate the product!

If you were approached by these people to invest and you actually told them to send you hardware to evaluate, then I take back what I said initially.

BTW: No, I'm not trying to be the next Ron Conway.

I don't see why not. It seems from the outside you could.

Aside from doing an unusually large number of deals, I don't see any resemblance between them whatsoever.

I don't know rc, or joshu well, so I could be way off base. But it seems it's doing a large # of the right deals, and all that follows from it. He seems to be in most hot deals, and so he's now developing a personal connection with all the major angels and vcs, as well as of course all the founders of the companies he has funded. So soon he'll be able to draw on this network, and that seems to be what rc is able to do.

joshu is not unique in that regard- there are many other angels also executing the conway shotgun strategy. The main difference is that he's doing the deals under his own name instead of setting up his own "fund".

I thought Ashton Kutcher was the next Ron Conway...

Knowing a bit about both you and Gabe, my impression is that your strategies differ due to your wildly different personal circumstances. There aren't 30+ deals to throw money at in Philadelphia, and if there were, you probably wouldn't want to spend your entire life doing deep diligence on every one of them.

It didn't seem like you had much of a strategy to me either. When you talked about intended results you said: "I get connections, notoriety, experience, exposure" (three of which are essentially the same thing). Which implies that whether or not you make your money back in the longer time frame (a vague 5-10 years) you will be happy because of the exposure.

Thus, I don't think that comparing you to a toy collector is the appropriate metaphor -- but certainly you aren't in it for the money which doesn't make you an investor in the traditional sense (esp. given the fact that you are not esp. invested in the success of companies in which you invest, but more in knowing what is going on).

If I had to choose a metaphor I'd say nerd socialite (which I don't mean in a bad way).

edit: Let me restate this in a clearer way. A strategy can only be developed with respect to intention. The traditional investor intention is profit maximization. Thus, a typical investment strategy would involve a plan to maximize wealth. This, I aver, you do not have.

That said, I think you have articulated other intentions which you seem to have a fairly well developed strategy to accomplish (find out what is going on, maximize connections). The extent to which this ties into other (potentially grander) intentions I have no idea and I don't believe you have articulated.

I don't see that any 3 of "connections, notoriety, experience, exposure" are at all the same thing. Here is what I understood him to mean by each of those:

Connections: Lots of people you know personally who you can call on as resources and who may call on you in return.

Notoriety: A reputation that makes strangers have a sense of who you are before you talk.

Experience: You've seen things enough to be able to learn what works and what doesn't.

Exposure: You hear about a lot of opportunities and get to decide which ones you want to be involved in.

If you want an analogy for what he's doing, I would suggest that he's trying to create a mutual fund of angel deals with one investor (himself). He's making lots of investments, spreading his money, not getting too deeply involved in any one, and is likely to rise or fall with the overall sector. (But h still wants to beat said sector.)

I interpreted exposure to mean exposure of himself rather than exposure to other things, but grant that your reading makes more sense. Even so, number 1 and 2 are closely related and none of the above ties in directly to money making. Not that this is a bad thing. I have a very similar strategy for life in general. Spread myself over many projects and types of experience, then decide later on what attracts you the most and pursue it more. In that sense, he may fall into a Gabe-esque angel strategy once he has the requisite experience (after a few years of his current method).

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